Today's borrowers refinancing to shorten the term of the
mortgage. However even at low rates, a shorter term means a
higher monthly payment. The benefit is that you'll build up
equity faster and pay far less in total interest over the life
of the home equity loan.
Consider Tony Nelson, 49, a real estate broker and his wife
Merrilyn, 56, a psychotherapist. Recently, the couple took out a
15-year fixed rate loan at 6.75% to replace an 8.13% ARM with a
30-year term. Their monthly payment jumped by $200, but now they
will own their own home outright by the time they retire. Smart!
Also the total interest on the 15-year loan will come to
$95,447, vs. $222,234 on the remaining life of the ARM -- and
that assumes their adjustable rate would have held steady at its
current 8.13%. "This is forced savings," says Tony. "When I
retire, we can scale down and take equity out of the house as we
want to."
If you can't afford the payments on a 15-year mortgage or home
equity loan, your next best means of building equity is to
refinance for less than 30 years. To do so, ask your mortgage
lender to customize your new loan's term to match the years that
are left on your previous loan. Also try to anylze your savings.
Check closely to determine the available mortgage rates and the
costs associated with refinancing. These mortgage costs can
include items such as an appraisal and other fees. Then
determine what your new mortgage payment would be if you
refinanced. Estimate how long it will take to recover the costs
of refinancing by dividing your closing costs by the difference
between your new and old mortgage payments. However, the amount
you may save depends on other factors as well. Including your
total refinancing costs, whether you sell your home in the near
future, and the effects of refinancing on your taxes. The old
rule of thumb used to be that you shouldn't refinance unless the
new interest rate is at least two percentage points lower.
However, many Mortgage lending companies are now offering zero
point loans and low cost refinancing. Therefore, even if your
rate change is less than one percentage point, you may be able
to save some money by refinancing. As always check with all
mortgage lenders to see what will be the best refinancing for
you.
About the author:
Copyright Troy Francis. Troy is a writer and real estate broker
for Century Mortgages. Please feel free to republish this
article. We only ask that you leave the link active. You many
see more articles like this by going to:
http://www.CenturyMortgages.org
